Question

Callie is admitted to the Adams & Beal Partnership under the goodwill method. Callie contributes cash...

Callie is admitted to the Adams & Beal Partnership under the goodwill method. Callie contributes cash of $40,000 and non-cash assets with a market value of $60,000 and book value of $45,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was $250,000 and an appraisal showed the partnership net assets were fairly stated. Adams and Beal shared profits and losses at a ratio of 70/30, respectively. What is the correct amount of goodwill distributed to Beal if goodwill is recognized by old partners only?

A. $60,000

B. 50,000

C. 45,000

D. None of the above

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Homework Answers

Answer #1

Solution:

Total contribution by callied in partnership = $40,000 + $60,000 = $100,000

Callie ownership interest in partnership = 20%

Therefore required capital of partnership on the basis of callie contribution = $100,000 / 20% = $500,000

Total capital of partnership after admission of callie = $250,000 + $100,000 = $350,000

Total goodwill amount = $500,000 - $350,000 = $150,000

Share of Beal in goodwill = $150,000 * 30% = $45,000

Hence option C is correct,

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